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MACROECONOMIC IMPLICATIONS OF ALTERNATIVE TAX REGIMES: THE CASE OF GREECE

Dimitris Papageorgiou
Athens University of Economics and Business

ABSTRACT

This paper uses a Dynamic General Equilibrium model that incorporates a detailed fiscal policy structure to examine how changes in the tax mix influence economic activity and welfare in the Greek economy. The results suggest that tax reforms that reduce the labour and capital income tax rates and increase the consumption tax rate lead to higher levels of output, consumption and private investment. If the goal of tax policy is to promote economic growth by changing the tax mix, then it should reduce the capital income tax rate and increase the consumption tax rate. In contrast, a lifetime welfare promoting policy would be to cut the labour income tax rate and increase the consumption tax rate.

Keywords: Fiscal Policy; Transitional dynamics; Economic growth; Welfare
JEL Classification: E62, 052

Acknowledgements: I am grateful to Tryphon Kollintzas, Apostolis Philippopoulos and Vanghelis Vassilatos for comments and suggestions. I have also been benefited from comments by Heather Gibson. Helpful comments by seminar audiences at Athens University of Economics and Business (5th Workshop in Macroeconomics), 7th Conference on Research on Economic Theory and Econometrics and the Bank of Greece are greatly appreciated. Financial support from the Bank of Greece is thankfully acknowledged. Any errors are my own. The views expressed in this paper are those of the author and not those of the Bank of Greece.

Correspondence:

Papageorgiou Dimitris,
Department of Economics
Athens University of Economics and Business,
76 Patission Street,
Athens 10434, Greece.
E-mail: dpapag@aueb.gr


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